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Factors influencing the residential property cycle in South Africa

Myburgh, Craig (2008-12)

Thesis (MBA)--Stellenbosch University, 2008.

Thesis

ENGLISH ABSTRACT: Internationally, a number of studies on property cycles have been undertaken. In
contrast very little academic research has been undertaken in South Africa. The
importance of the subject is once again become evident given the recent global
turbulence in both property and credit markets.
The central hypothesis of this study is that there exists a residential property
cycle in South Africa and that it can be identified and that furthermore there are
indicators that can identify the various stages that the property market finds itself
in and that these indicators can be used to forecast the property cycle.
A number of potential drivers of the property cycle were identified and analysed.
These drivers collectively propel the property cycle through its various cycle
stages. Not one of the drivers in isolation has the ability to move the cycle; it is
rather the correct combination of drivers at the right time that have the necessary
impact to make the changes in property price levels.
The study has identified the historical residential property cycle in South Africa
and identified the primary drivers of the property cycle. It was found that Interest
Rates, GOP, Population, Household Debt to Disposable Income ratio, Quantity of
Building Plans Approved and Building Cost Escalation are all material drivers in
defining the property cycle.
A statistical analysis in the form of multiple regression was applied to the above
variables and a statistical model was developed to forecast the property cycle. It
was found that the model has significant explanatory powers when the goodness
of fit was tested.